As Corporate America enters the thick of the earnings season, beware of the red flags. Two Notre Dame professors, building on a Barron's story, have come up with statistical evidence that certain phrases in financial filings often signal trouble ahead.

We pointed to 13 danger phrases—dirty words, we called them—in a story two years ago ("Watch Their Language," Aug. 31, 2009). The piece caught the attention of Notre Dame professors Tim Loughran and Bill McDonald, who then performed an analysis of the phrases.

In a recently published study of more than 50,000 10-K filings dating from 1994 to 2008, the pair found that many of the phrases Barron's identified showed a statistically significant connection to future stock prices, volatility and analysts' profit estimates.

The abstract of "Barron's Red Flags: Do They Actually Work?" (Journal of Behavioral Finance, vol. 12), says: "There is evidence that phrases like 'unbilled receivables' signal a firm may subsequently be accused of fraud." Among other conclusions, phrases like "substantial doubt" are linked with stock underperformance from the filing date, higher volatility, and a wider range of analyst earnings estimates. Some other terms to watch out for: "related-party transaction" and "consulting relationships."

Such phrases, Loughran said in an interview, "don't necessarily mean the company is doing something wrong, but it does mean more due diligence is necessary."